Pound to Euro Exchange Rate Holding Above Key 1.20 Level despite Brexit Uncertainty
Last week saw a fresh jump in demand for the Pound (GBP), rocketing the Pound Sterling to Euro (GBP/EUR) exchange rate up to near its best levels in years. Even as Brexit uncertainties persist, the Pound is holding its ground.
After starting last week on a limp note near the interbank level of 1.17, GBP/EUR saw a surge in demand towards the end of the week.
In fact on Thursday alone GBP/EUR jumped over a cent. The pair closed the week in the key region of 1.20.
This was just below Friday’s best levels since the aftermath of the 2016 Brexit referendum. GBP/EUR continued to trend in the key 1.20 region at the time of writing on Monday.
With key UK data ahead and the Euro’s (EUR) appeal limited by Eurozone growth fears, there may be more strength ahead for the pair.
Pound (GBP) Exchange Rates Gain on UK Treasury Reshuffle
Investors were surprised by UK political developments last week. Prime Minister Boris Johnson pressured Sajid Javid to quit as Finance Minister.
Javid was required to replace advisers but he objected, leading him to resign. Johnson quickly replaced Javid with loyalist Rishi Sunak.
Markets were excited by the reshuffle in the Treasury team. This was due to speculation that it could lead to a more expansionary budget, which could lead to stronger UK economic growth.
Hope for more economic growth also further doused Bank of England (BoE) interest rate cut speculation and boosted the Pound (GBP). Strategist at Rabobank said:
‘The implication is that there may be less need for the central bank to cut rates to keep the economy supported – which is clearly GBP positive,’
The Pound is slipping back slightly from its best levels today. However, it is sustaining most of last week’s impressive gains overall.
Euro (EUR) Exchange Rates Remain Under Pressure amid Poor Eurozone Growth
Last week’s key Eurozone data failed to show much sign of recovery in the Eurozone economic outlook. This is despite months of hopes of recovery from markets and politicians.
Friday saw the publication of a slew of Q4 2019 growth rate projections. Both German and Eurozone growth rates came in even lower than forecast.
German growth is projected at a stagnant 0.0% quarter-on-quarter. Eurozone growth unexpectedly slowed to 0.9% year-on-year.
As a result of lingering Eurozone growth concerns, even stronger than expected Eurozone employment change data was not enough to help the Euro (EUR) to hold its ground.
Analysts predict that coronavirus jitters will slip into the background as a longer term concern. This will leave the Euro to be driven more by economic developments again. According to Kyosuke Suzuki, Manager of Currencies at Societe Generale:
‘In contrast, sentiment on the Euro is becoming clearer, with weak economic fundamentals helping to push it down.’
Pound to Euro (GBP/EUR) Exchange Rate Could See Continued Support from UK Data
Investors grew more hopeful for Britain’s economic outlook following last week’s UK political developments. Hopes that the domestic budget could boost the economy will continue to support the Pound (GBP).
However, hopes for a strong UK economic rebound this year do still largely depend on the current strength of economic activity as well.
As a result, Pound investors will be closely watching the ecostats due for publication in the coming days.
Domestic job market data will come in tomorrow, followed by inflation on Wednesday, retail sales on Thursday and PMI projections on Friday.
If these stats beat forecasts the Pound may be in for continued strength and GBP/EUR could more easily remain near its best levels in years.
However, if there are any fresh signs of recovery in the Eurozone economic outlook, the Euro (EUR) could recover too.
Pound to Euro (GBP/EUR) exchange rate investors will also closely be watching tomorrow’s Eurozone economic sentiment stats from ZEW, as well as Eurozone PMI projections at the end of the week.